Un-Jailed Americans

The derivates market collapse was amplified by these rating agencies which rated complex subprime vehicles like CDOs and SIVs very highly… Just like they gave Thailand an investment grade rating until 5 months after the Asian financial crisis… Just like they gave Enron investment grades until days before its bankruptcy … Just like … Heck, S&P thinks the Alan Keyes/Mike Gravel '08 ticket will win the White House.

How common were their poor ratings? Over 90% of the AAA ratings given to subprime securities in 2006 and 2007 were later downgraded to junk status. These rapid, last-minute downgrades shattered investor confidence and triggered the market collapse.

Moody's and S&P knew these products didn't deserve high ratings and that providing them was something between negligence and fraud, but, apparently money calms the conscience. Moody's and S&P were paid to rate products by the very firms who would profit from their ratings. No high ratings, no business. This "conflict of interest" became a "confluence of opportunity" as most conversations between the issuers and the raters went like this:

"I want to sell this pile of turds. I'll give you a million dollars to decide what it's worth."

"Hey everybody! Hurry up and buy this lumpy brown gold!"

It's just like when Arthur Andersen was paid by Enron to audit and approve Enron's accounting scams. Two differences: Arthur Andersen was dissolved for being an accomplice to fraud and when Enron eventually collapsed, it only ruined Houston.

Ironically, S&P recently threatened to downgrade the United States government rating because of the effects of the financial crisis…a crisis largely caused by S&P and Moody's, whose leaders are, thankfully, not in jail.